Inflation and the Russia-Ukraine conflict remain in the sights of the markets

Posted on May 10, 2022 Once again we start the week with the same tune of the last days, the fear of inflation and the war in Ukraine are in the first line of financial risks, being the main factors of the volatility in the markets. We started the week with the same tone as the previous one, in which the meetings of the different Central Banks, macro data and business results, since the shadow of the recession for 2023 is growing, left in the background the conflict in Ukraine and the new outbreak of Covid-19 in China, which, however, will continue to be very present. The German 10yr bond yield hit a new high since 2014 of 1.08% (+4bps), while the Italian risk premium extended last week’s rise as analysts raised their expectations for future rate hikes. rates following recent comments from ECB officials. In Europe, the German Economy Minister warned of the dangers of entering a price-wage spiral by urging the negotiating parties of collective agreements to accept punctual payments instead of salary increases comparable to the current level of inflation, the highest in 40 years. A new sense of urgency to respond to the problem of high inflation is palpable among policymakers and can be clearly seen in the latest barrage of comments. Holzmann declared on Saturday that the ECB should raise interest rates three times this year to combat inflation. However, President Christine Lagarde reiterated that the agency’s interest rate adjustments will take place at some point, after the end of net purchases, and will be gradual. Money markets continue to price ECB rate hikes by the end of this year at around 95bps and an almost 25% chance of a hike in June. In Asia, the minutes of the last meeting of the Bank of Japan revealed that the institution will maintain its accommodative monetary policy and interest rates at ultra-low levels despite the fact that inflation could rise above 2% from time to time. Bank of England member Michael Saunders suggested inflation expectations could take off if central banks don’t act decisively, proposing rate hikes of 50bps until interest rates reach neutral. INFORMATIONTitleInflation and the Russia-Ukraine conflict remain in the spotlight of the marketsDescriptionOnce again we start the week with the same tune as in recent days, the fear of inflation and the war in Ukraine are at the forefront of financial risks , being the main factors of volatility in the markets. Author GLOBALCAJA

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